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Caporale, Guglielmo Maria, Hadj Amor, Thouraya and Rault, Christophe (2009) International financial integration and real exchange rate long-run dynamics in emerging countries : some panel evidence. Centre for International Capital Markets discussion papers, 2009 (14). pp. 1-23. ISSN 1749-3412
The aim of this paper is to provide new empirical evidence on the impact of international financial integration on the long-run Real Exchange Rate (RER) in 39 developing countries belonging to three different geographical regions (Latin America, Asia and MENA). It covers the period 1979-2004, and carries out "second-generation" tests for non-stationary panels. Several factors, including international financial integration, are shown to drive the long-run RER in emerging countries. It is found that the new financial environment characterised by international financial integration leads to a depreciation of the RER in the long run. Further, RER misalignments take the form of an under-valuation in most MENA countries and an over-valuation in most Latin American and Asian countries.
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